When the stock market gets choppy, it can be nice to have extra cash regularly deposited in your account. Let’s look at two top stocks that pay regular dividends to shareholders. These profitable companies are leaders in their industries that can fund dividends for many years.
1. AT&T
AT&T (NYSE: T) generates stable revenue and free cash flow from serving millions of wireless phone subscribers and broadband customers. This consistent fund intake supports regular dividend payments to shareholders.
The company currently pays a quarterly dividend of $0.2775 per share, which brings the forward dividend yield to 5.86% — or about three times the S&P 500‘s average of 1.32%.
Whenever you see a stock offering such a high yield, you should assume there are risks facing the company. Sure enough, AT&T previously cut its quarterly dividend in 2022 to pay down debt. The company will need to continue reducing its debt burden, but it is making progress. Over the last year, long-term debt declined from $132 billion to under $127 billion. Management is focused on reducing its debt while generating free cash flows to support the dividend.
Through the first half of the year, AT&T generated $8.5 billion in free cash flow and paid $4.1 billion in dividends to shareholders, so the dividend should be safe from further cuts.
However, Wall Street has also been concerned about increasing competition in the wireless and broadband markets. But here, too, AT&T’s recent performance should mitigate these concerns. In the second quarter, mobility service revenue grew over 3% year over year, with consumer broadband revenue up 7% over the year-ago quarter.
Management anticipates healthy wireless activity in the second half of the year from new device launches. Apple‘s new iPhones which are expected to include Apple Intelligence features will provide an incentive for customers to upgrade, which could benefit AT&T.
2. Dell Technologies
Dell Technologies (NYSE: DELL) stock doesn’t offer the high yield of AT&T, but its forward yield of 1.82% is still above average. But its lower yield also reflects better growth prospects within Dell’s artificial intelligence (AI) server business.
Dell is a very profitable business that funds a growing dividend. Since the start of its capital return program in fiscal 2023, it has returned $8 billion to shareholders through share repurchases and dividends. It paid out 21% of its free cash flow in dividends over the last four quarters.
Over 40% of Dell’s revenue comes from its infrastructure solutions group, including servers and networking. This is also its fastest-growing business, with infrastructure revenue up 22% year over year in the fiscal first quarter.
However, it is still largely dependent on a slow-growing PC market, which limited Dell’s year-over-year growth in total revenue to 6% last quarter. This is why the stock trades at a very modest forward price-to-earnings ratio of 12, but this low earnings multiple could significantly undervalue Dell’s long-term prospects, as noted by the stock’s market-beating performance over the last year.
The best reason to buy the stock is the AI opportunity. In fiscal Q1, Dell’s AI server shipments doubled over the year-ago quarter, signaling more enterprises are making long-term investments in this technology.
Dell’s above-average yield and low forward P/E make it an attractive option for dividend investors looking for growth and income. It’s already putting together a record of annual dividend increases, after raising the dividend by 12% in 2023 and 20% earlier this year to the current payout of $0.445 per share.
Should you invest $1,000 in AT&T right now?
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John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
